Economic slowdown dampens festive spirit

As India feels the ripple effects of the global financial crisis, is the common man nervous about India's economic health? With stock markets crashing to new lows, how badly have people been affected by the market meltdown? And are people worried about losing their jobs and has that lend them to cut down on their spending?

These are some of the questions that experts on CNN-IBN debated in a special Face the Nation show.

On the panel of experts were Director of Human Resources, Infosys, V Mohandas Pai, Managing Trustee of Consumer Voice Professor Sri Ram Khanna and Director of Centre for Forecasting and Research Premchand Palety.

Do financial failures of the West affect India?

It has been called the greatest financial crisis since the Great Depression of 1929. Many analysts say this is the death of free market capitalism. Others say it is the birth of a new set of regulations on the financial sector.

How do the colossal financial failures of the West affect India? We at CNN-IBN in partnership with The Hindustan Times decided to carry out an opinion poll to understand what people are thinking about the economic slowdown.

The poll was conducted by GFK Mode in seven cities – Delhi, Mumbai, Ahmedabad, Bangalore, Hyderabad, Chennai and Kolkata between October 21 and 22. A total of 1,431 street interviews were conducted.

Findings of the poll:

Are you worried about the economic slowdown?

Yes: 82 per cent

No: 18 per cent

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Have you been personally affected by the crash in the stock market?

Yes: 47 per cent said they have been affected by the market meltdown.

No: 53 per cent said they have not been affected by the market meltdown.

(People in Hyderabad and Ahmedabad were most affected)

Where would you invest today?

Land or property: 37 per cent

Bank fixed deposit: 34 per cent

Gold: 18 per cent

Mutual funds and stock markets: 11 per cent

Have people personally cut down on spending?

Yes: 43 per cent

No: 57 per cent

Are we right in concluding that the sentiment is universally poor or is there a more commonsensical approach among Indians?

V Mohandas Pai began the debate by saying, “We are seeing bad news on television and newspaper everyday. A large part of the educated middle class in India is now part of the global community. The present situation is creating more fear and anxiety than what is present in reality. People in India have not been drastically hurt. Their income is still secure. So it is just the over arching news that comes from the media which connotes as if the world is coming to an end.”

But has spending gone down this Diwali or are Indians too big spenders to go back to austerity?

Financial expert Shriram Khanna said, “The Indian consumer is a very hard working employee. He earns good money but spends it very wisely. Whenever there is a threat in the horizon, a virtual or a real one, then he changes his consumption pattern. He then begins to save for the rainy day.”

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Khanna added that he agreed with the survey that says that a section of the people are affected by fear psychosis.

“We should also remember that less than five per cent of the people in this country are involved with shares. The bulk of the country still has great faith in fixed deposits and they are giving good returns. Land and real estate is something that Indians have invested in since time immemorial,” he explained.

But there has been a loss of trust in the stock market which was seen as the great barometer of the Indian economic programme.

Khanna said it is not a matter of trust. “Indians do agree that the stock market is only for the lion-hearted. It is for those who are willing to take risks. 95 per cent of Indians don’t go down that street. It is a small number of people who take a part of their savings and go to the markets. So it cannot affect everyone in India. But when one is reading about it all the time then people tend to get scared. It is like if there is an earthquake in Kutch then people in Kerala also begin to get scared. The real bad story is in USA. Only those sectors that have global ramification that will be affected,” he said.

Some say that this is a media-created crisis or fear psychosis in the middle class. But is there a sense of trickle down to the non-organised workers?

“It is actually a failure of capitalism. They had not properly invested in research. There has been more investment on consumption so what we see is an impact of that,” Palety said.

More findings of the poll:

Are you worried about losing your job?

Yes: 47 per cent

No: 53 per cent

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Is it right for companies to cut jobs?

Yes: 21 per cent 79 per cent

No: 79 per cent

Commenting on the poll finding Pai said, “If a sector like the exports is affected due to the meltdown then there will be job cuts. We see that already happening in the garment industry with orders getting cancelled. But the job cut scenario is not widespread.”

He added, “Please remember that this is an internal consumption market. This is not an export-driven market. But at the time when the world is going at maybe 1 to 2 per cent, India is growing at 6 to 7 per cent. So it is an enormous number. Also if there are a few policy changes by the Government then growth is going to be good in India.”

Regarding anxiety among the Indian consumer, Khanna said, “Yes, many of my students ask me if they will get jobs and I tell them they would but maybe the high pay scales will not be according to expectations.”

“It is not going to be the 20-30 per cent annual growth that we have seen in the last five to six years. So jobs will be there and I have no doubt about it. Indian economy is growing and so is domestic consumption. I only fear for the poor in India because of food prices and domestic inflation. So inflation is the real devil and not what is being projected nowadays,” Khanna reasoned.

Do you think nationalised banks are safer than private banks?

Yes: 54 per cent

No: 46 per cent

Is it Government's responsibility to bailout private banks if they face a financial problem?

Yes: 68 per cent said the Government must bailout private banks.

No: 32 per cent said it’s not the Government’s job to bailout private banks.

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Employment in India

It is believed that the export industry is going to affected by the global financial crisis. The IT industry relies on export so how is Infosys counseling its young engineers?

Pai said, “We are telling them keep your passion and energy because things are going to turnaround faster than we think. People are not taking decisions because of the uncertainty in the markets. So the scenario at Infosys is different.”

Do you think in many ways a dream has been sold to the young Indians? For too long the economy was like a bubble. But now a dose of reality is required for mental transformation to take place.

“Globally, this is a once in a 100 year event. This is not something that happens every five or 10 years. Once in 100 years the financial system is under stress. We have seen banks with trillion-dollar balance sheets disappear in 24 hours. But this is a wake up call and it is good to remind people that things can go down too. People who go through this process will be much better off and realistic in future,” Pai said.

Sixty-eight per cent said that it is the Government’s responsibility to bailout private banks if they face a financial problem. Dose that mean that free market capitalism has been revealed to be flawed?

“The Indian consumer is very clear. In the last seven or eight years whenever there has been a problem with any private bank or a cooperative bank then it is the RBI or the Government that have told these banks that to save themselves they have to merge. And how many banks have merged? Let me tell you that nothing of the sort that has happened in America vis-à-vis banks can happen in India,” Khanna assured.

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But does the Government have enough money to bailout these banks?

“It is not a question of bailing out these banks,” Khanna said.

“What has happened in the past is that the weaker banks have been merged with the stronger banks. Our banking regulator is our country is amongst the best in the world,” he added.

Is this the time for all companies to practice what is being called compassionate capitalism to show that we are a nation and not a market. Also, experts say that companies should follow compassionate ways of retrenchment and show capitalism’s human face if people have to be laid off.

“I have been following many B-schools and there has been a pall of gloom in many campuses. Banking and finance sectors have been a major recruiter for the past several years. So growth strategies need to be rethought now,” Palety said.

Meanwhile, advising young MBA graduates, Pai said, “I would tell then to look at the first five years in their career to build their capability and get relevant experience.”

“In fact, the public sector is going to open up in a dramatic manner in the next five years. About 15 to 20 lakh jobs will be available in the public sector. This sector has not hired in the last 18 years. In the next five years about 25 per cent of its workforce will retire and there are going to be huge opportunities. So there will be no dearth of jobs but the absurd pay scales that we have seen in the past will now cease to exist,” he added.

Concluding the debate, Khanna said, “The people of this country are not believing everything that the Finance Minsiter and Prime Minister is telling them. But they are smart enough to take the signals from all over the place. There is a base of optimism in this uncertain climate.”

Catch the detailed results of the poll in The Hindustan Times on Tuesday. Also, watch the second part of the poll on CNN-IBN with Rajdeep Sardesai on The Weekend Edition. Full transcript of the show will be available on www.ibnlive.com.